Crystallex Reports 2003 Year-End Results TORONTO, April 23
/PRNewswire-FirstCall/ -- Crystallex International Corporation
(Amex: KRY; TSX) reported year-end results for 2003. All dollar
figures are in Canadian Dollars unless otherwise indicated. 2003
Highlights - Positive Feasibility Study for the Las Cristinas gold
project completed by SNC - Lavalin Engineers and Constructors Inc.
(SNCL). - Strengthened senior management with the hiring of Todd
Bruce as President and Chief Executive Officer and Ken Thomas as
Chief Operating Officer. Closed the Vancouver office and
consolidated the Company's management and administrative operations
at its new Toronto head office. - Received bids by year-end for
Engineering, Procurement and Construction Management (EPCM)
services for the development of Las Cristinas. - Reserves at
December 31, 2003 of 10.6 million ounces of gold, including 10.2
million ounces at Las Cristinas. - Common share and special warrant
financings in August and September 2003 raised gross proceeds of
US$38.2 million. Cash at December 31, 2003 of $33.9 million. -
Policy to become hedge free. Reduced gold contracts in 2003 by 25%,
or 122,000 ounces. In 2004, plan to buy back additional contracts
in an amount at least equivalent to gold production for the year. -
Sold the San Gregorio mining interests and related assets in
Uruguay. - Net loss for the year of $82.1 million, or ($0.70) per
share, inclusive of a non-hedge derivative loss of $21.7 million,
or ($0.18) per share and a non-cash write-down of mineral
properties of $23.0 million, or ($0.20) per share. Subsequent to
Year-End - In January and February, further strengthened management
by recruiting three senior project development executives: Ron
Colquhoun as Vice President Technical Services; Barney Burke as
Corporate Manager, Projects; and John Binns as Vice President
Environment. - On March 8, received approval of the Las Cristinas
Feasibility Study from the Corporacion Venezolana de Guayana (CVG).
- On March 25, awarded an EPCM contract to SNCL to provide services
for the construction of Las Cristinas. The EPCM schedule is
approximately twenty-four months. Detailed engineering has
commenced. - On April 5, closed a common share financing of 25
million common shares at $4.00 per share for gross proceeds of $100
million. Net proceeds received of US$71.7 million will be used to
fund the development of Las Cristinas. - On April 15, submitted the
Environmental Impact Study (EIS) for Las Cristinas to the CVG and
the Ministry of the Environment and Natural Resources (MARN).
Receipt of all required permits to start construction of Las
Cristinas is expected later in 2004. Commenting on the results,
Todd Bruce, Crystallex President and Chief Executive Officer said,
"2003 was a watershed year for Crystallex. The Company's program of
strengthening its management team, which it initiated over two
years ago, continued to progress with the appointment of Ken Thomas
as Chief Operating Officer and myself as President and Chief
Executive Officer. The Company produced a full feasibility study
for the Las Cristinas project which demonstrated the financial
viability of the project and which was submitted to the CVG ahead
of schedule. The Company completed a major financing in the fall
which transformed the company financially and enabled it to fast
track the Las Cristinas project and to recapitalise its existing
operations in Venezuela." "I am very pleased to note how we have
been able to increase the momentum even more in 2004 with the
recruiting of Ron Colquhoun, Barney Burke and John Binns, the
approval of the Las Cristinas feasibility study by the CVG, the
appointment of SNCL as the EPCM contractor, the C$100 million
financing, the appointment of BNP Paribas as our project financing
advisor, the submission of the EIS which has triggered the final
permitting process and the commencing of the works of exploitation
at site with the start of the detailed geo-technical drilling and
the refurbishment of the construction camp and supporting
infrastructure." Todd Bruce further noted, "The C$18.8 million
accounting write down of the La Victoria asset reflects the
economic impact of the unoxidised zone of the La Victoria ore body
returning, in large part, unsatisfactory gold recoveries of 60% or
less from conventional cyanidation treatment due to the refractory
character of the ore. However, given the potential that exists to
expand resources and reserves of unoxidised ore, and the positive
results generated by bench scale bio-oxidation test work on a wide
range of unoxidised ore samples, the Company has commenced a drill
program to expand resources and reserves, as detailed in our press
release dated April 19, 2004, and a bio- oxidation pilot plant
program to determine the capital and operating cost parameters for
an operational unit at our Revemin central processing facility.
Given our current geological interpretation, and the positive bench
scale bio- oxidation results, we are confident that the feasibility
study scheduled for completion in the fourth quarter of 2004 will
re-establish the economic viability of the La Victoria operation
with the application of the bio- oxidation process to a larger
resource and reserve." Management Discussion and Analysis Of
Financial and Operating Results (in Canadian dollars, unless
otherwise noted) Overview The Company recorded a number of
significant achievements during 2003 and continues to make
considerable progress in early 2004. A positive feasibility study,
which was completed for the Las Cristinas project in September
2003, was approved by the CVG on March 8, 2004. The study confirmed
the economic and technical viability of Las Cristinas using
conventional open pit mining and carbon-in-leach (CIL) gold
processing. Also during 2003, Requests for Proposals (RFPs) were
prepared and issued to engineering firms to bid for EPCM services
related to the construction of Las Cristinas. After a thorough
evaluation process, SNCL was appointed on March 25, 2004 as the
EPCM contractor for the Las Cristinas project. The project
schedule, from detailed engineering through commissioning of the
plant, is estimated to be approximately twenty-four months. The EIS
for Las Cristinas was recently revised in conjunction with the CVG.
The permitting process was initiated with the submission of the
final EIS to the CVG and the MARN on April 15, 2004. The Company is
aiming to obtain interim approval during the summer to begin site
preparation work and hopes to receive the final environmental and
mining permits necessary to begin construction activities during
the fourth quarter of 2004. The Company has met all the required
social commitments in the Las Cristinas Mining Operating Agreement,
(MOA) with the CVG. Local infrastructure projects, including
building thirty new houses, installing new sewerage and water
treatment facilities and road upgrading have been completed. The
Company is also upgrading a medical clinic and providing medicine
on a monthly basis. As required under the MOA, Crystallex has
employed 125 local residents at the project and is providing
ongoing job training programs. Crystallex started an infill drill
program at Las Cristinas during the first quarter of 2004 with the
aim of upgrading some of the inferred resources to measured and
indicated resources, which is expected to add to reserves. In the
third quarter of 2003, the Company sold its San Gregorio mine in
Uruguay to Uruguay Mineral Explorations Inc. (UME). The transaction
was very positive for the Company, as UME assumed all obligations
and liabilities, including closure and environmental obligations,
as well as funding the closing of the San Gregorio gold forward
sale position of 37,640 ounces. UME will also pay Crystallex sale
proceeds of US$2.0 million during 2004. The sale of the San
Gregorio assets advanced the Company's objective of reducing its
gold hedge book. During 2003, the Company reduced its forward sales
and call options sold by 122,000 ounces. This was accomplished
through the San Gregorio sale, a buyback of 25,000 ounces of
forward sales contracts and by delivering gold production into
forward contracts. The Company had approximately 350,000 ounces of
forward sales and call options sold at the end of 2003 at an
average price of US$304 per ounce. During 2004, the Company intends
to close additional contracts through financial settlements. By the
end of the third quarter 2003, the Company had considerably
improved its cash position. Gross proceeds of US$38.2 million were
raised in two special warrant financings in August and September. A
portion of the proceeds were used for immediate capital investments
at our existing Tomi mines and Revemin mill and quickly contributed
to the improved operating performance during the fourth quarter of
the year. Gold production of 15,200 ounces in the fourth quarter
accounted for 43% of total gold production of approximately 35,200
ounces from the Venezuelan operations in 2003. In 2004, the Company
expects to produce about 50,000 ounces of gold. The Company's cash
position was further strengthened with the $100 million common
share financing subsequent to year-end. These proceeds will allow
the Company to advance with engineering, equipment purchasing and
start development of Las Cristinas during 2004. The total financing
requirement for Las Cristinas is estimated at approximately US$340
million, including US$39 million of refundable VAT, a cost overrun
requirement to support our guarantee of a planned project debt
financing, interest during the construction period and various
financing fees. Currently, the Company expects to finance the
construction of Las Cristinas with a combination of equity and
project debt. Financial Results Overview 2003 2002 2001 Operating
Statistics Venezuela Gold Production 35,244 27,791 42,690 Uruguay
Gold Production (1) 41,729 66,832 66,957 Total Gold Production
(ounces) 76,973 94,623 109,647 Total Cash Cost Per Ounce Sold (2,3)
US$378 US$346 US$178 Average Realized Price Per Ounce (3) US$363
US$310 US$242 Average Spot Gold Price Per Ounce US$363 US$310
US$271 Financial Statistics (C$ thousands) Revenues(3) $15,567
$13,318 $16,006 Cash Flow from Operating Activities (3,4) ($34,308)
($4,549) $4,318 Net Loss ($82,054) ($56,460) ($42,552) Net Loss per
Basic Share ($0.70) ($0.67) ($0.62) Weighted Average Number of
Common Shares Outstanding 118,309,198 84,441,287 69,117,738 (1)
Includes nine months production from San Gregorio in 2003. On the
Financial Statements, San Gregorio is accounted for as a
Discontinued Operation. (2) This is a non-GAAP measure. For an
explanation of Total Cash Costs refer to the section of Non-GAAP
measures. (3) From continuing operations only (excludes San
Gregorio). (4) Includes Working Capital changes, before capital
expenditures. During 2003, the Company incurred a net loss of $82.1
million, or $0.70 per share as compared with a net loss of $56.5
million, or $0.67 per share in 2002. The larger net loss in 2003
was primarily attributable to a non-cash charge of $23.0 million
for a write-down of mineral properties, (of which $18.8 million
relates to the La Victoria property), an increase in general and
administrative expenses from $9.0 million to $22.4 million, and a
foreign exchange loss of $4.5 million. The foreign exchange loss
was due to the impact of the weakening of the U.S. dollar on the
Company's Canadian dollar obligations. These items were partially
offset by a reduction in the non- hedge derivative loss to $21.7
million in 2003 as compared with a $34.8 million loss in 2002.
Revenue on our Statement of Operations represents revenue from the
Venezuelan operations only, as San Gregorio is accounted for as a
Discontinued Operation. Revenue in 2003 was $15.6 million, as
compared with $13.3 million in 2002. The increase in revenue is
attributable to selling more ounces of gold in Venezuela at a
higher average realized price. Gold sales in 2003 were 30,632
ounces at an average realized price of US$363 per ounce, as
compared with 28,088 ounces in 2002 at an average realized price of
US$310 per ounce. Operating cash flow from continuing operations,
before capital expenditures, was a utilization of $34.3 million in
2003, as compared with a utilization of $4.5 million in 2002.
Higher general and administrative expenses, cash used to reduce the
gold hedge book and a greater use of cash related to working
capital changes were the main reasons for a larger operating cash
flow deficit in 2003. Financing activities increased during 2003.
The Company raised approximately $75 million during the year,
primarily with special warrant financings. The financings in 2003
and the April 2004 common share financing for gross proceeds of
$100 million have considerably improved the Company's liquidity.
Income Statement Production and Gold Sales Revenue 2003 2002 Gold
Production (ounces) San Gregorio(1) 41,729 66,832 La Victoria 5,564
22,548 Tomi Open Pit 24,360 2,347 Tomi Underground 2,753 0
Purchased Material 2,567 2,896 Total 76,973 94,623 Total Cash Costs
(US$/ounce) San Gregorio $276 $237 Venezuela $378 $346 Company
Average $323 $269 (1) Figures are for the nine months of 2003 that
Crystallex owned San Gregorio. (2) Ore from Tomi, La Victoria and
Purchased material is processed at the Company's Revemin mill. In
2003, the Company produced almost 77,000 ounces of gold, about
18,000 ounces less than the 95,000 ounces produced in 2002. The
decrease was due to selling the San Gregorio mine at the end of the
third quarter of 2003, although this was partially offset by higher
gold production in Venezuela. Gold production in Venezuela was
approximately 35,000 ounces in 2003, a 25% increase over the 28,000
ounces produced in 2002. There was a considerable improvement in
operating performance during the final quarter of 2003, with gold
production reaching 15,200 ounces, as compared with 4,300 ounces in
the first quarter. This was attributable primarily to increasing
mill throughput resulting from capital investments in equipment and
spare parts, as well as from higher ore grades and gold recoveries.
The Revemin mill operated at 98% of its 1,350 tonne per day
capacity during the fourth quarter of 2003, up from only 55% in the
first quarter of the year. Gold recovery, which averaged 84% for
the year, was 92% in the fourth quarter. The grade of ore processed
at the Revemin mill during the fourth quarter averaged 4.2 grams
per tonne, as compared with 3.5 grams per tonne for the full year
and 3.0 grams per tonne in 2002. Tomi Tomi was the Company's main
producing concession in 2003, accounting for about 77% of
Venezuelan production. Tomi produced 27,113 ounces in 2003, of
which 24,360 ounces were from the Milagrito and Mackenzie open pit
mines and the balance of 2,753 ounces were from the new Charlie
Richards underground mine. Almost all of the Company's forecast
gold production of 50,000 ounces in 2004 will come from the Tomi
concession. Mining will be conducted at the Milagrito and Mackenzie
open pits and the Charlie Richards underground mine. The open pit
reserves at Tomi are forecast to be depleted during 2005.
Production at the Charlie Richards underground mine is expected to
reach design levels of about 200 tonnes of ore per day by the third
quarter of 2004. At full operation, annual gold production from the
underground mine is forecast to range between 10,000 and 17,000
ounces per year for approximately four years at current estimated
reserves of 68,000 ounces of gold. Total cash costs are forecast to
average US$175 per ounce. The Company has forecast capital
expenditures of approximately US$2.0 million for the Tomi
concession during 2004. La Victoria The La Victoria deposit
contains a significant quantity of sulphide refractory ore, which
results in low gold recoveries when processed at the Revemin mill,
which is a conventional cyanide-in-leach plant. The recovery of
gold from La Victoria ore averaged only 54% during the third
quarter of 2003 and 68% for the first nine months of the year. As a
consequence, the production of ore has been suspended at La
Victoria while the Company assesses the viability of treating the
refractory ore in a Bio-Oxidation circuit prior to cyanide
leaching. The Company is currently conducting a Bio-Oxidation pilot
plant test on a twenty tonne sample of ore from La Victoria. Due to
a lack of capital in the past, data from previous drilling is
insufficient to accurately confirm the full extent of La Victoria's
reserve potential. Consequently, an infill drill program is
underway to better determine the size and grade of the deposit.
Production will resume at La Victoria if the Bio- Oxidation process
is technically viable and the project generates an acceptable
economic return. A decision will likely be made in the third
quarter of 2004. The Company wrote-down its entire $18.8 million
carrying value of La Victoria in accordance with Canadian Generally
Accepted Accounting Principles (GAAP). Nevertheless, based on
positive preliminary Bio-Oxidation testwork and geological
interpretations, the Company is optimistic that La Victoria can be
restored to economic viability. Gold Sales The Mining Revenue line
on the Statement of Operations of the Company only includes gold
sales from our Venezuelan mines, as the San Gregorio mine in
Uruguay was sold at the end of the third quarter of 2003 and is
accounted for as a Discontinued Operation. Gold sales were 30,362
ounces in 2003 from operations in Venezuela. This is less than
production of 35,244 ounces as approximately 4,900 ounces of gold
produced in December 2003 were not sold until after year-end.
Including gold sales from San Gregorio of 39,562 ounces, total gold
sales for the year were 70,194 ounces. Spot gold prices averaged
US$363 per ounce in 2003, up from US$310 in 2002. In Venezuela, all
our gold is sold to the Central Bank and the Company receives the
prevailing spot gold price. During 2003, we received an average
price of US$363 per ounce for our Venezuelan gold sales. This
generated revenue on our Statement of Operations of $15.6 million
during 2003. Most of the gold sales from Uruguay were delivered
against forward sales positions and the Company realized an average
price of US$297 per ounce on gold sales from Uruguay. In 2004, the
Company expects to continue to sell all gold production to the
Venezuelan Central Bank and realize the spot price of gold on these
sales. Gold sales proceeds are received in local currency and will
be utilized to fund ongoing operations and capital projects in
Venezuela. Operating Expenses The Company's total cash costs of
production include mining, processing, mine administration,
royalties and production taxes and excludes corporate general and
administrative expenses, depreciation and depletion, financing
costs, capital costs, exploration and reclamation accruals. The
Company's cost of sales for 2003 were $16.2 million as compared
with $15.2 million in 2002, as more ounces of gold were produced
and sold in 2003 than in 2002. Gold sales from continuing
operations were 30,632 ounces in 2003, as compared with 28,088
ounces in 2002. The total cash costs per ounce of gold sold from
Venezuela was US$378 per ounce in 2003, however when gold
production from discontinued operations (Uruguay) is included, the
Company's total cash costs were US$323 per ounce. Operating costs
in Venezuela were high during the first nine months of 2003,
particularly in the first quarter when they averaged US$460 per
ounce. The high costs were primarily a result of low gold
recoveries at La Victoria. Gold production improved materially by
year-end as mining was entirely conducted at the Tomi concession,
which is higher grade and yields higher gold recoveries than
experienced at La Victoria. General and Administrative Expenses
General and Administrative (G&A) expenses totalled $22.4
million during 2003, as compared with about $9.0 million in 2002.
Compensation, including salaries and bonuses, comprised the largest
component of G&A during 2003, at about $7.4 million. Other
significant G&A expense categories included legal and audit
fees of $3.8 million, advisory and consulting fees of about $3.0
million, Caracas office G&A of $2.0 million and insurance of
$1.3 million. G&A expenses in 2003 were approximately $13.4
million higher than in 2002. During the year the Company incurred
unusual and one-time expenses in respect of: special one-time bonus
payments to officers and directors related to the consummation of
the Las Cristinas mining agreement; bonus and success fees paid to
various Venezuelan litigation and other legal counsels;
professional fees related to responding and satisfying questions
raised during an ongoing regulatory review; successful completion
of several financings and office closures with related
consolidation costs. At least $5 million of such costs represent
one-time expenditures. In addition, the Company has significantly
added to its senior staff in contemplation of the commencement of
the financing and construction of the Las Cristinas project,
further increasing G&A expenditures. The largest component of
the $13.4 million increase was bonus payments, which were $2.9
million higher in 2003 as compared with 2002. Included in the $2.9
million increase are $1.3 million of special bonuses paid in
September 2003 to management and directors of the Company and $1.1
million of success fees paid to the Company's Venezuelan legal
counsel, all as one-time payments specifically in recognition of
their commitment of time and effort on behalf of the Company, over
several years, in successfully consummating the Las Cristinas
mining operation agreement. The payments were approved by an
independent compensation committee of the Board of Directors.
Advisory fees accounted for $2.3 million of the increase of G&A
expenditures in 2003 as compared with 2002. The two principal
advisory fees were related to the engagement of an investment bank
to provide corporate advisory services and for the engagement of a
project finance debt advisor for Las Cristinas. Other G&A areas
that had material increases during 2003 included legal and audit
fees, which increased by $2.1 million and insurance which increased
by $1.1 million. Forward Sales and Written Call Options The Company
has adopted a policy to become hedge free as we hold the view that
the market ascribes a discount to derivatives. The Company plans to
eliminate its existing economic derivative commitments, which
consist of call options sold and forward sales contracts. This will
be accomplished by repurchasing forward sales and call option
contracts at opportune times. To facilitate this approach, the
Company plans to negotiate with its counterparties to move certain
commitments to future periods. The Company made considerable
progress during 2003 in reducing the number of hedged ounces of
gold. Commitments under forward sales and call options were reduced
from 471,872 ounces to 350,025 ounces, a reduction of almost
122,000 ounces. This was mainly accomplished by delivering gold
production into forward sales positions, buying back 25,000 ounces
of forward sales (at a net cost of approximately US$74 per ounce or
US$1.84 million) and by retiring 37,640 ounces of forward sales as
part of the sale of the San Gregorio mine. At year-end, the
Company's contracted ounces represented just 3% of our reserves. As
tabled below, at December 31, 2003, the Company's derivative
position was comprised of 125,856 ounces of fixed forward contracts
at an average price of US$305 per ounce, and 224,169 ounces of call
options sold at an average price of US$303 per ounce. 2004 2005
2006 Total Fixed Forward Gold Sales (ounces) 43,430 42,430 39,996
125,856 Average Price (US$/ounce) $300 $305 $310 $305 Written Gold
Call Options (ounces) 127,237 94,932 2,000 224,169 Average Exercise
Price (US$/ounce) $298 $309 $348 $303 Total (ounces) 170,667
137,362 41,996 350,025 Average Price (US$/ounce) $299 $308 $312
$304 Accounting for Derivative Instruments The Company's existing
forward sales and call options are designated as derivatives so
they do not qualify for the normal sales exemption, (or hedge
accounting) for accounting treatment. The Company's metal trading
contracts are recorded on the Balance Sheet at fair market value.
Crystallex has no off-balance sheet gold contracts. Changes in the
fair value of derivatives recorded on the Balance Sheet are
recorded in earnings as an unrealized non- hedge derivative (loss)
gain in the Statement of Operations. The gains and losses occur
because of changes in commodity prices and interests rates. The
variation in the fair market value of options and forwards from
period to period can cause significant volatility in earnings;
however, this fair market value adjustment is a non-cash item that
will not impact the Company's cash flow. For the year, the total
unrealized mark-to-market loss on the non- hedge derivative
positions was $19.4 million. In addition, realized losses of $2.3
million arising from financial settlement of contracts were also
recognized. Mark-to-Market (Fair Value) At December 31, 2003, the
unrealized mark-to-market value of the Company's gold forward sales
and call options, calculated at a year-end spot price of US$415 per
ounce was negative $52.6 million. This fair value is recorded on
the Balance Sheet as a liability (Deferred Credit) and represents
the replacement value of these contracts based upon the spot gold
price at year- end and does not represent an obligation for
payment. The Company's obligations under the forward sales
contracts are to deliver an agreed upon quantity of gold at a
predetermined price by the maturity date of the contract, while
delivery obligations under the call options sold are contingent
upon the price of gold and will take effect if the gold price is
above the strike price of the relevant contract at its maturity
date and the option is exercised by the option holder. In
circumstances where the Company is unable to meet the obligations
under the fixed forward sales or call options, the Company may
negotiate with the counterparty to defer the expiry date of the
forward sale or call option, or purchase gold in the market, or
settle the positions financially. If the Company were to purchase
gold in the market or settle the contracts financially, it would
result in a reduction of the Company's cash. The table below
illustrates the cash requirement if the Company had to financially
settle contract positions in excess of planned production. The
analysis assumes the Company proceeds with a Bio Oxidation
operation at La Victoria, the Albino mine is developed on schedule
and excludes future Las Cristinas production. It also assumes the
Company is unable to roll existing contracts to future periods. The
December 31, 2003 spot gold price of US$415 per ounce is used. US$
millions 2004 2005 2006 Total Total ounces Committed 170,667
137,362 41,996 350,025 Planned Production 50,000 75,000 65,000
190,000 Excess Committed Ounces 120,667 62,362 nil 183,029 Average
Committed Price (US$/oz) $299 $308 $312 $302(1) Average Assumed
Spot Price (US$/oz) $415 $415 $415 $415 Cash Required to Settle
Excess Positions $14.0 $6.7 nil $20.7 (1) Represents the average
price for the years 2004 and 2005 in which there are excess
committed ounces. The Company cautions readers not to place undue
reliance on the projected production figures illustrated above. As
noted under "Forward Looking Statements" in the Annual Report,
predictions and forecasts involve inherent risks and uncertainties.
A number of factors could cause actual results to differ from
plans. Write-down of Mineral Properties The Company annually
performs property evaluations to assess the recoverability of its
mining properties. Impairment evaluations compare the undiscounted
forecast future cash flow from each operation with its carrying
value and where the cash flows are less, a write-down to estimated
fair value is recorded. In 2003, Crystallex incurred mineral
property write-downs of $23.0 million. Management concluded that
the undiscounted cash flow from currently estimated reserves at the
La Victoria property, determined using a US$325 per ounce gold
price and preliminary capital and operating cost estimates for a
Bio-Oxidation plant, would be insufficient to recover the carrying
value of the property. In accordance with Canadian GAAP, the
Company wrote-down the value of the La Victoria property by $18.8
million, reducing the carrying value to zero. A lack of capital in
the past prevented the Company from undertaking a comprehensive
drill program to determine the full extent of La Victoria's reserve
potential. The Company is presently drilling at La Victoria and
expects to have a revised reserve estimate during the third quarter
of 2004. In addition, the Company will soon be conducting a Bio-
Oxidation pilot plant test to confirm the amenability of the La
Victoria ore to the Bio-Oxidation process. The remaining $4.2
million balance of the $23.0 million of mineral property
write-downs is related to various exploration properties,
principally the Santa Elena property in Venezuela. Liquidity and
Capital Resources Historically, the Company's principal source of
liquidity has been equity and equity-equivalent forms of financings
as the Company's operations have not generated sufficient cash to
meet its operating requirements and planned capital expenditures.
The Company anticipates capital needs of approximately US$350
million over the next two years, related to developing Las
Cristinas and for capital projects at existing operations. In
addition, over the same period, the Company forecasts cash
requirements of between US$30 million to US$40 million to cover
general and administrative requirements, debt service and operating
cash flow deficits. Crystallex will continue to rely on the equity
markets for meeting its commitments and planned expenditures and
also intends to access the project debt finance market to meet a
portion of the expected capital expenditures for the development of
Las Cristinas. The Company intends to finance the development of
Las Cristinas with a combination of equity and project finance
debt. On April 5, 2004, Crystallex closed an offering of 25 million
shares priced at $4.00 per share for gross proceeds of $100
million. The proceeds will primarily be used to fund the
development of Las Cristinas. To advance the Las Cristinas project
to commercial production, the Company currently expects to issue
equity or arrange other forms of financing later this year or in
early 2005 and expects to close a project finance debt agreement
with a syndicate of commercial banks and possibly export credit
agencies during 2005. There can be no assurance that these
financing arrangements will be available, or available on terms
acceptable to the Company. Working Capital At December 31, 2003,
the Company's working capital position improved significantly to
$4.7 million from negative $19.5 million at December 31, 2002. The
increase was due to common share and warrant financings during the
third quarter of 2003, which raised aggregate gross proceeds of
US$38.2 million. The Company's cash position at December 31, 2003
was $33.9 million. Furthermore, the recent $100 million common
share financing has considerably enhanced the Company's liquidity.
Cash Flow from Operations Operating cash flow (after working
capital changes and before capital expenditures) was a utilization
of $34.3 million in 2003. A cash flow deficit was incurred as
revenues from gold sales were offset by direct operating costs of
production, consequently there was no cash flow to provide for
general and administrative expenses, interest expenses and working
capital changes. The deficit of $34.3 million in 2003 was $29.8
million higher than the deficit of $4.5 million in 2002. The
increase was mainly due to an $11.4 million increase in General and
Administrative cash expenditures (a portion of G&A expenses in
2003 were paid in shares and warrants of the Company) and a $9.5
million increase in cash used for changes in working capital items.
Also, the Company spent $2.3 million on reducing its gold forward
sales positions during the year, including a buyback of 25,000
ounces of forward sales contracts at a spot price of US$372 per
ounce. The Company expects to have a cash flow deficit of
approximately US$15 million in 2004 as cash flow from the
operations will be insufficient to fund general and administrative
expenses, debt service and cash obligations related to the
Company's gold hedge book. Investing Activities The Company's
principal investing activities are for capital expenditures at its
operations. Capital expenditures during 2003 totalled $12.3
million, as compared with $42.2 million in 2002. The reduction in
capital spending was largely due to reduced expenditures at Las
Cristinas. Expenditures at Las Cristinas were $37.4 million in 2002
and included a US$15.0 million payment to the CVG under the terms
of the Mining Operating Agreement. The investments in 2003 were
principally for the Las Cristinas project ($9.9 million), including
the costs for the Feasibility Study, maintaining the camp and
completing the social development infrastructure programs. The
balance of the capital expenditures were related to the operating
mines in Venezuela. The Company is planning significant capital
expenditures in 2004 and 2005, mainly for the development of the
Las Cristinas project. The timing of these expenditures will be
determined by our ability to raise both equity and debt financing.
Capital expenditures during 2004 are estimated at approximately
US$88 million as follows: Las Cristinas US$80 million; Tomi US$2
million; Revemin Mill US$3 million and Albino US$3 million. If the
Company proceeds with the construction of a Bio Oxidation plant at
Revemin for processing La Victoria ore, it is presently estimated
that capital expenditures of approximately $15 million will be
required for the plant and for development work at the La Victoria
mine. These expenditures would largely be incurred in 2005. It is
expected that the projected operating deficit and capital
expenditure requirements for 2004 will be funded with the proceeds
from the $100 million equity financing and from cash on hand of
$33.8 million at December 31, 2003. As noted, to complete the
development of Las Cristinas, the Company currently expects to
issue equity or arrange other forms of financing later in 2004, or
in early 2005 and anticipates closing a project finance debt
transaction in 2005. The Company expects to realize cash proceeds
of US$2.0 million from the sale of the San Gregorio mine in 2004.
The first installment of US$1.0 million was received by the Company
on April 14, 2004. Financing Activities During 2003, the Company
raised net financing proceeds of $75.1 million, of which $61.7
million were proceeds from five special warrant financings
throughout the year, $9.4 million were proceeds from the issuance
of common stock and $4.1 million were proceeds from a convertible
note financing. The convertible notes were converted into common
shares during the fourth quarter of 2003. Refer to Note 8 of Notes
to the Financial Statements for details of the special warrant
financings. In addition, common shares were issued during the year
for the following main activities: on the exercise of warrants and
special warrants (22.1 million shares); upon the conversion of
convertible notes (17.0 million shares); for bank loan repayments
(2.3 million shares); for legal fees (1.3 million shares) and for
financial advisory fees (350,000 shares). The Company also issued
warrants and special warrants during 2003 for the following main
activities: 13.9 million warrants and special warrants issued for
cash; 900,000 common share warrants issued for consulting fees and
450,000 warrants issued as part of the convertible note financing
noted above. Payment of various fees in common shares during the
first nine months of 2003 reflects the Company's previous lack of
liquidity. Equity financings during the past six months (including
the recent $100 million common share financing) have significantly
improved the Company's liquidity and it is now the Company's
intention to use cash rather than common shares to meet its
obligations. Debt repayments were $2.1 million during 2003. At
year-end, the Company's total debt outstanding was $9.7 million.
The debt is a term loan with Standard Bank London Limited secured
by certain of the Company's assets (excluding Las Cristinas). The
loan bears interest at approximately 2.5% over Libor with principal
payments due semi-annually until 2006. Total debt was reduced from
$34 million at year-end 2002, principally by issuing common shares
upon the conversion of convertible notes. Contractual Obligations
and Commitments The Company's contractual obligations and
commitments are tabled below: 2004 2005 2006 Scheduled Debt
Repayments US$1,030,000 US$4,400,000 US$2,058,000 Operating Lease
Obligations $204,000 $208,000 $198,000 Precious Metal Contracts:
Fixed Forward Contracts 43,430 oz @ 42,430 oz @ 39,996 oz @ an
average of an average of an average of US$300/oz US$305/oz
US$310/oz Call Options Sold 127,237 oz @ 94,932 oz @ 2,000 oz @ an
average of an average of an average of US$298/oz US$309/oz
US$348/oz In addition, the Company has royalty commitments that are
only payable if gold is produced. There is no obligation to make
payments if gold is not produced. Currently, the Company's only
gold production is from the Tomi concession, which is subject to a
1.75% royalty on gold revenue. All gold production in Venezuela is
subject to an exploitation tax, established under the Mining Law,
which is payable to the Republic. The exploitation tax is presently
3% of gold revenue. Related Party Transactions During 2003,
Crystallex entered into the following material transactions with
related parties: Legal Fees - Gomez Cottin & Tejera-Paris:
Gomez Cottin & Tejera-Paris are the Company's Venezuelan legal
counsel. For a portion of 2003, Gomez Cottin & Tejera-Paris
were considered a related party as Enrique Tejera-Paris, a
principal of Gomez Cottin & Tejera-Paris, was a member of the
Board of Directors of Crystallex. For the portion of the year that
Gomez-Cottin & Tejera was a related party they were paid
$3,895,582 for providing legal advice to Crystallex. - McMillan
Binch LLP: McMillan Binch LLP provides legal services to the
Company. David Matheson is counsel to McMillan Binch LLP and is a
member of the Board of Directors of Crystallex. During 2003,
McMillan Binch LLP was paid $484,896 for providing corporate legal
services to Crystallex. Management and Consulting Fees - Orion
Securities Inc.: Orion Securities Inc. is an investment dealer that
provided advisory services to the Company during 2003, and of which
Mr. Robert Fung is an employee. He is Chairman of the Board of
Directors of Crystallex. During 2003, Orion was paid $1,196,000 for
advisory services, (the payment was made in shares and warrants of
the Company). - Osprey Capital Partners: During 2003, Crystallex
paid $520,000 to Osprey Capital Partners, a partnership in which
Robert Fung is a minority partner. The payments to Osprey Capital
Partners by Crystallex were for investment banking counseling
provided by other partners of Osprey Capital Partners and Mr. Fung,
which advice was unrelated to his role as Chairman of Crystallex. -
Riccio Consulting: Dr. Luca Riccio is the Vice President,
Exploration for Crystallex. He is paid under a consulting
arrangement for his services and in 2003 his company, Riccio
Consulting, received payments of $214,018. - Capital Markets
Advisory Inc.: Michael Brown is the principal of Capital Markets
Advisory Inc. and he is a member of the Board of Directors of
Crystallex. During 2003, Crystallex paid $160,000 to Capital
Markets Advisory Inc. for providing investor relations and other
corporate advisory services to the Company. Directors Remuneration
- Robert Fung: During 2003 Mr. Fung was paid $561,800, which was a
one- time special bonus in recognition of Mr. Fung's contribution
over the years to successfully securing the Las Cristinas
properties. - Harry Near: Harry Near is a member of the Board of
Directors of Crystallex. During 2003 Mr. Near was paid $145,000,
which was a one- time special bonus in recognition of Mr. Near's
contribution over the years to successfully securing the Las
Cristinas properties. - David Matheson: David Matheson is a member
of the Board of Directors of Crystallex. During 2003, Mr. Matheson
was paid $75,000 for additional time and services as Chairman of
the Audit Committee. Outstanding Share Data At April 12, 2004,
175,583,492 of common shares of Crystallex were issued and
outstanding. In addition, at April 12, 2004 options to purchase
10,234,000 common shares of Crystallex were outstanding under the
Company's option plan and warrants to purchase 18,334,905 common
shares of Crystallex were issued and outstanding. Critical
Accounting Policies and Estimates Use of Estimates The preparation
of financial statements in conformity with accounting principals
generally accepted in Canada requires management to make estimates
and assumptions that affect the reported amount of asset and
liabilities and disclosure of contingent assets at the date of the
consolidated financial statements. Significant estimates used
herein include those relating to gold prices, recoverable proven
and probable reserves, available resources, fair values of
commodity derivative contracts, (principally fixed forward
contracts and written call options) available operating capital and
required reclamation costs. Among other things, these estimates
each affect management's evaluation of asset impairment and the
recorded balances of inventories, site closure and reclamation and
remediation obligations. It is reasonably possible that actual
results could differ in the near term from those and other
estimates used in preparing these financial statements and such
differences could be material. Property Evaluations The Company
reviews and evaluates the recoverability of the carrying amounts of
all its producing properties and related plant and equipment
annually or when events and changes in circumstances indicate that
the carrying value may not be recoverable. Estimated net future
cashflows, on an undiscounted basis, are calculated using estimated
recoverable ounces of gold (considering current proven and probable
reserves), estimated future commodity price realization
(considering historical and current prices, price trends and
related factors) and, operating costs, future capital expenditures,
project financing costs, reclamation costs and income taxes.
Reductions in the carrying amount of property, plant and equipment,
with corresponding charges to earnings, are recorded to the extent
that the estimated future undiscounted net cashflows are less than
the carrying amount. Capitalization of Exploration and Development
Costs Mineral exploration costs such as topographical, geochemical,
and geophysical studies are capitalized and carried at cost until
the properties to which they relate are placed into production,
sold, or where management has determined there to be a permanent
impairment in value. Development costs incurred to access ore
bodies identified in the current mining plan are expensed as
incurred after production has commenced. Development costs
necessary to extend a mine beyond those areas identified in the
current mining plan and which are incurred to access additional
reserves are deferred until the incremental reserves are mined.
Mineral properties and development costs, including the mineral
acquisition and direct mineral exploration costs relating to the
current mining plan are depleted and amortized using the
units-of-production method over the estimated life of the ore body
based on proven and probable reserves. Commodity Derivative
Contracts The Company uses commodity derivative contracts,
principally fixed forward contracts and written call options, to
economically hedge exposure to fluctuations in the market price of
gold. These instruments are not designated as hedges for accounting
purposes and are carried on the balance sheet under the captions
deferred credit and deferred charge, at estimated fair market
value. Premiums received at the inception of written call options
are initially recognized on the balance sheet as a liability.
Unrealized gains or losses arising from changes in the fair market
value of the liability related to both fixed forward contracts and
written call options and realized gains/losses on commodity
derivative contracts which are either settled financially or
through physical delivery, are recognized in the statement of
operations in the period of the change or settlement as an
unrealized non-hedge derivative loss/gain. Non GAAP Measures Total
cash costs per ounce are calculated in accordance with the Gold
Institute Production Cost Standard, (the "Standard"). The total
cash cost per ounce data are presented to provide additional
information and are not prepared in accordance with Canadian or
U.S. GAAP. The data should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
GAAP. The measures are not necessarily indicative of operating
profit or costs of operations as determined under Canadian or U.S.
GAAP. The total cash cost per ounce calculation is derived from
amounts included in the Operating Expense line on the Statement of
Operations. As this line item is unchanged under US GAAP, the total
cash cost per ounce figure is similarly unchanged using US GAAP
results of operations. Data used in the calculation of total cash
costs per ounce may not conform to other similarly titled measures
provided by other precious metals companies. Management uses the
cash cost per ounce data to access profitability and cash flow from
Crystallex's operations and to compare it with other precious
metals producers. Total cash costs per ounce are derived from
amounts included in the Statement of Operations and include mine
site operating costs such as mining, processing, administration,
royalties and production taxes but exclude amortization,
reclamation, capital expenditures and exploration costs. Total cash
costs per ounce sold may be reconciled to our Statement of
Operations as follows: C$,000 2003 2002 2001 Operating Costs per
Financial Statements 16,240,363 15,191,619 11,696,769 By-Product
Credits --- --- --- Reclamation and Closure Costs --- --- ---
Operating Costs for Per Ounce Calculation 16,240,363 15,191,619
11,696,769 Ounces Sold 30,632 28,088 42,690 Total Cash Cost Per
Ounce C$ C$530 C$541 C$274 Average Annual C$/US$ F/X Rate 1.40 1.57
1.55 Total Cash Cost Per Ounce Sold US$ US$378 US$346 US$178 About
Crystallex Crystallex International Corporation is a Canadian based
gold producer with significant operations and exploration
properties in Venezuela. The Company's principal asset is the Las
Cristinas property in Bolivar State that is currently under
development. Other key assets include the Tomi Mine, the La
Victoria Mine and the Revemin Mill. Crystallex shares trade on the
TSX (symbol: KRY) and AMEX (symbol: KRY) Exchanges. NOTE: This may
include certain "forward-looking statements" within the meaning of
the United States Securities Exchange Act of 1934, as amended. All
statements, other than statements of historical fact, included in
this presentation, including, without limitation, statements
regarding potential mineralization and reserves, exploration
results, and future plans and objectives of Crystallex, are
forward-looking statements that involve various risks and
uncertainties. There can be no assurance that such statements will
prove to be accurate, and actual results and future events could
differ materially from those anticipated in such statements.
Important factors that could cause actual results to differ
materially from the Company's expectations are disclosed under the
heading "Risk Factors" and elsewhere in documents, including but
not limited to its annual information form ("AIF") and its annual
report on Form 20-F, filed from time to time with the Canadian
provincial securities regulators, the United States Securities and
Exchange Commission ("SEC"), and other regulatory authorities.
Cautionary Note to Investors -- We use certain terms in this
release, such as "resource," "measured resource", "indicated
resource" and "inferred resource," that the SEC guidelines strictly
prohibit us from including in our filings with the SEC.
Furthermore, reserves have been calculated in accordance with NI
43-101, as required by Canadian securities regulatory authorities.
For United States reporting purposes, however, a full feasibility
study is required in order to classify mineral deposits as
reserves, since the SEC permits mining companies, in their filings
with the SEC, to disclose only those mineral deposits that a
company can economically and legally extract or produce. Therefore,
the amount of reserves may differ for Canadian and US reporting
purposes. The Toronto Stock Exchange has not reviewed this release
and does not accept responsibility for the adequacy or accuracy of
this news release. DATASOURCE: Crystallex International Corporation
CONTACT: Investor Relations, A. Richard Marshall, VP of Crystallex
International Corporation, +1-800-738-1577, or email, Web site:
http://www.crystallex.com/
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